Recession talk is in the air. Will there be one? Will it be mild or significant? Has it already started? Anxiety is building among employers, current employees and potential employees, making this a critical moment for organizations to determine the right path forward.
As speculation continues, many are pulling out their 2008 recession playbooks and thinking about what’s next. But do those old playbooks still apply in a fundamentally changed world?
Current data show that – if it comes – this recession will be different. U.S. unemployment rates are near historic lows, and worker shortages seem to be more permanent than expected. What’s more, inflation is placing incredible pressure on both employers and employees.
In addition to a challenging labor and economic environment, employers also face dramatically shifting employee expectations, and recent employee opinion data tells us the pressure is building. Employees are increasingly expressing that they are overworked and underpaid and that employers aren’t doing a sufficient job to engage them.
So, how do total rewards leaders prepare for what may be coming? While it’s tempting to dust off the old recession playbook, we know old tactics won’t work.
Astute leaders acknowledge these cultural and talent shifts as they plan for action. They understand that ROI can be achieved without deteriorating (and in some cases, even improving) value to employees, thus building resilience for both the organization and the employee.
Following are the do’s and don’ts to consider regarding scenario planning (vs. cost-cutting) and flexibility in compensation, wellbeing and work models as you build an effective strategy. We’ll share additional actionable guidance in Part 2 of this article.
Cutting costs is a tried-and-true tactic for leaders to ensure the business is fiscally responsible in tight times. At the same time, pay, benefits and job security rank among the top drivers of employee attraction and retention, according to our 2022 Global Benefits Attitudes Survey. As such, uninformed cost-cutting becomes a hatchet, risking employee trust, putting stress on vulnerable employee groups and damaging your organization’s reputation in the labor market.
Future-thinking total rewards leaders prepare for a range of economic and labor conditions and consider their impact on total rewards programs and practices. They model different economic and labor market scenarios across a broad range of scenarios – including extremes – to identify priorities and potential trade-offs, explore ways to optimize spending on total rewards, and save cash before they make decisions. They understand that employees are not one-dimensional and have different needs and expectations of their total rewards “deal.” These leaders also understand that the labor market is not one-dimensional and recognize that they now compete for talent across a variety of geographies and industries.
A total rewards strategy that meets employees where they are aligns your programs with employee engagement drivers. It also addresses a newfound focus on holistic wellbeing, including financial wellbeing, and resilience. This insulates both employees and the business against potential external shocks – like a recession. “Flexibility” means different things to different parties. For employers, it translates to cost flexibility to scale up or down as economic conditions change. For employees, it means flexing their paycheck or benefits programs to best meet their needs in times of change. Flexibility can take many forms, from a simple choice to full-flex models across all pay, benefits, career and wellbeing programs. Defining flexible total rewards for your organization and deciding where you want to invest will provide the proper foundation for your future offerings.
For employers, flexible compensation strategies can include increasing your allocation of variable pay from fixed pay to provide downside protection during fiscal contractions. And by allowing employees to upsize or downsize retirement savings plan deferrals (without negative implications for employer-funded retirement contributions) or providing early access to earned wages, your workforce has options in how it manages take-home pay.
Flexibility in benefits and wellbeing programs can include things like profit-sharing components for retirement programs, offering meaningful choice in healthcare programs, or providing “side-car savings” or “lifestyle” accounts that allow employees to direct funds toward what’s important to them. Flexible (or phased) retirement programs can help employers retain key talent when it’s needed the most and encourage exits in surplus talent markets.
Hybrid work models and flex-work arrangements can alleviate short-term financial pressures in high-inflation environments by helping employees save money that would otherwise go toward gas or parking. And hiring contingent or gig workers can be a cost-effective solution to fill talent gaps.
Bottom line? Taking a scenario-planning approach increases the likelihood that you will make decisions that sustain business success, even in the face of economic volatility. And doubling down on flexibility and choice means giving both the organization and its employees options in how total rewards are deployed, allowing everyone to scale up or down as conditions change. The ability to react to uncertainty with resilience and prudence is the key to a sustainable model for both the business and its workforce.
In Part 2 of this article, we dive into the dos and don’ts regarding employee growth and pay, transparency and dialogue, and preparing for unknowns within the context of recession-proofing your total rewards initiatives.
A version of this article appeared in Workspan Daily. All rights reserved, reprinted with permission.